What 10 Million Barrels Per Day Does—and Doesn’t—Mean

Crude oil production in the United States has passed the 10 million barrel-per-day level (Mbd) and will soon break the all-time record set in 1970. The surge in shale output has revitalized the nation’s oil sector, lowered pump prices for consumers, and reduced net petroleum imports to just 2.6 Mbd. This is a sharp turnaround from a decade ago, when production fell to just 5 Mbd, consumers were paying $4 per gallon for their gasoline, and we imported approximately 60 percent of our petroleum needs.

The surge in shale output has revitalized the nation’s oil sector, lowered pump prices for consumers, and reduced net petroleum imports to just 2.6 Mbd.

The remarkable shift should be celebrated, but it is also important to remember how much surrounding U.S. energy security has not changed. More than 90 percent of the transportation is fueled by petroleum, we still import 45 percent of our crude oil, and consumers are vulnerable to price swings and supply outages on the global market.

“The steep fall in net oil imports does not mean the U.S. economy is immune to the effects of an oil price shock,” said Ed Crooks, Energy Editor at the FT, in a well-crafted Twitter thread last week.

In the past year, despite rapid growth in shale, we have seen the negative effects of an unfree international market and supply outages due to geopolitical instability. The coordinated action between OPEC and its non-OPEC partners such as Russia has restricted global production, while output declines in Venezuela—a major U.S. supplier—have accelerated amid social unrest, political tumult, and ongoing mismanagement. The supply problems are occurring against the backdrop of rising demand, particularly in emerging markets.

“The reason oil prices have been volatile has been that both supply and demand are inelastic, so you need a big move in price to bring supply and demand into balance,” Crooks said on Twitter.

Rising shale and lower imports have not significantly altered U.S. foreign policy.

Rising shale and lower imports have not significantly altered U.S. foreign policy. We are still involved in the Middle East and other oil-producing regions, which are prone to unpredictability. It is likely that we and our allies will be reliant on these areas for crude oil supply for decades to come. Even now, approximately 37 percent of U.S. crude imports come from OPEC countries.

“The U.S. has not given up its strategic involvement in the Middle East, both because it has non-oil interests there, and because oil disruption would affect U.S. trading partners,” said Crooks. “And although the U.S. has more freedom to use oil-related sanctions as a policy tool, there are limits.”

We could see a more volatile and unstable global oil market in the future since shale’s outlook is uncertain and investment in conventional fields has declined in the past few years. Higher U.S. production has currently brought some semblance of stability to global oil prices, but a return to $100 per barrel oil, higher imports, and greater reliance on OPEC appears likely.

“If oil demand keeps growing, it will at some point exhaust shale’s capacity to keep increasing supply.”

“If oil demand keeps growing, it will at some point exhaust shale’s capacity to keep increasing supply,” said Crooks. “When that point is reached, the results could be messy. The past two decades of historical volatility in crude certainly do not suggest there has been any clear downward shift since the shale oil boom began. The U.S. shale revolution has certainly had some momentous consequences… But many of the economic and security issues raised by oil are still with us.”

Reaching the 10 Mbd is an important milestone, but it is important that it does not make the country complacent.

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The Fuse is an energy news and analysis site supported by Securing America’s Future Energy. The views expressed here are those of individual contributors and do not necessarily represent the views of the organization.

Issues in Focus

Safety Standards for Crude-By-Rail Shipments

A series of accidents in North America in recent years have raised concerns regarding rail shipments of crude oil. Fatal accidents in Lynchburg, Virginia, Lac-Megantic, Quebec, Fayette County, West Virginia, and (most recently) Culbertson, Montana have prompted public outcry and regulatory scrutiny.

2014 saw an all-time record of 144 oil train incidents in the U.S.—up from just one in 2009—causing a total of more than $7 million in damage.

The spate of crude-by-rail accidents has emerged from the confluence of three factors. First is the massive increase in oil movements by rail, which has increased more than three-fold since 2010. Second is the inadequate safety features of DOT-111 cars, particularly those constructed prior to 2011, which account for roughly 70 percent of tank cars on U.S. railroads. Third is the high volatility of oil produced from the Bakken and other shale formations, which makes this crude more prone towards combustion.

Of these three, rail car safety standards is the factor over which regulators can exert the most control. After months of regulatory review, on May 1, 2015, the White House and the Department of Transportation unveiled the new safety standards. The announcement also coincided with new tank car standards in Canada—a critical move, since many crude by rail shipments cross the U.S.-Canadian border. In the words DOT, the new rule:

Since the rule was announced, Republicans in Congress sought to roll back the provision calling for an advanced breaking system, following concerns from the rail industry that such an upgrade would be unnecessary and could cost billions of dollars. The advanced braking systems are required to be in place by 2021.

Democrats in Congress have argued that the new rules are insufficient to mitigate the danger. Senator Maria Cantwell (D-WA) and Senator Tammy Baldwin (D-WI) both issued statements arguing that the rules were insufficient and the timelines for safety improvements were too long.

The current industry standard car, the CPC-1232, came into usage in October 2011. These cars have half inch thick shells (marginally thicker than the DOT-111 7/16 inch shells) and advanced valves that are more resilient in the event of an accident. However, these newer cars were involved in the derailments and explosions in Virginia and West Virginia within the past year, raising questions about the validity of replacing only the DOT-111s manufactured before 2011.

Before the rule was finalized, early reports indicated that the rule submitted to the White House by the Department of Transportation has proposed a two-stage phase-out of the current fleet of railcars, focusing first on the pre-2011 cars, then the current standard CPC-1232 cars. In the final rule, DOT mandated a more aggressive timeline for retrofitting the CPC-1232 cars, imposing a deadline of April 1, 2020 for non-jacketed cars.

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DataSpotlight

The recent oil production boom in the United States, while astounding, has created a misleading narrative that the United States is no longer dependent on oil imports. Reports of surging domestic production, calls for relaxation of the crude oil export ban, labels of “Saudi America,” and the recent collapse in oil prices have created a perception that the United States has more oil than it knows what to do with.

This view is misguided. While some forecasts project that the United States could become a self-sufficient oil producer within the next decade, this remains a distant prospect. According to the April 2015 Short Term Energy Outlook, total U.S. crude oil production averaged an estimated 9.3 million barrels per day in March, while total oil demand in the country is over 19 million barrels per day.

This graphic helps illustrate the regional variations in crude oil supply and demand. North America, Europe, and Asia all run significant production deficits, with the Middle East, Africa, Latin America, and Former Soviet Union are global engines of crude oil supply.